The 2 Types of Special Needs Trusts

special needs trust

A special needs trust (sometimes called a “supplemental needs trust” or abbreviated “SNT”) is a trust that is set up to take care of a disabled individual. This may be a loved one who has special physical, mental, or emotional needs.

Oftentimes these individuals are receiving public benefits such as Medicaid or Supplemental Security Income (“SSI”).

There are 2 types of special needs trusts which we will discuss further below. A special needs trust attorney can help clarify which is best for you.

But before we get into that, there are some basic facts you need to know about special needs trusts.

Special Needs Trust Basics

First, it is important to understand that special needs trusts must be carefully drafted.

Because the purpose of the trust is to take care of the person with special needs, the trust terms must be drafted so as to expressly state the trust maker’s intent to help the beneficiary, yet not interfere with his or her eligibility for SSI or other needs-based government funds.

SSI is a federal program that provides benefits to adults and children who are blind or disabled, or to adults 65 and older who have limited to no income. To qualify for SSI benefits, the individual must have very limited financial resources and little to no income.

The SSI program provides supplemental income for people who have worked very little, or never worked at all. To qualify for SSI, a person must meet the strict financial limits set by the Social Security Administration (SSA). These limits include wages as well as items that are considered to be financial “resources.”

If a person has resources above the SSI limits (i.e., $2,000 for an individual or $3,000 for a married couple), then he or she will not qualify to receive benefits.

According to the SSA, trusts count as “resources.”

Importantly, however, special needs trusts do not count as “resources” for SSI purposes. But the amount of money paid to a beneficiary through a special needs trust can reduce the amount of SSI he receives and may also affect Medicaid eligibility.

All of this is to emphasize how important it is that a special needs trust be carefully drafted and executed. It’s essential to work with a special needs trust lawyer near you to avoid legal concerns.

The special needs trust must be drafted so that it is clear from the terms of the trust agreement that the trustee is to use the trust assets to supplement—not replace—public benefits. For example, if special trust assets are used to pay for basics like food and shelter for the beneficiary, the beneficiary will lose his/her Medicaid benefits. If the beneficiary of a special needs trust is given cash (or even a gift card) to purchase items on his/her own, the beneficiary may lose his/her SSI benefits or have them reduced.

Another key factor that should be considered here is that a special needs trust places a significant amount of responsibility on the trustee.

The trustee is responsible for paying for the beneficiary’s needs (in accordance with the terms of the trust), yet the trustee also has a responsibility to make sure that any payments from the trust do not endanger the beneficiary’s eligibility for public benefits like SSI or Medicaid. If the trustee fails to understand the difference between what constitutes supplementing public benefits and what constitutes supplanting those benefits when making trust distributions, the beneficiary stands to either lose his benefits entirely or have them reduced. This is a grave responsibility because the impact to the beneficiary is so serious.

Another primary responsibility the trustee has is to account for trust income taxes. A special needs trust beneficiary must pay taxes on all trust income even when that income is not distributed. And it is the trustee’s responsibility to see that this is properly handled.

Again, any failure on the trustee’s part to pay taxes and account for trust income taxes can have significant negative consequences for the beneficiary. And it can severely impact the trustee as well. A trustee that improperly administers a special needs trust can be held personally liable if his/her actions or inactions adversely affect the beneficiary’s public benefits.

A further point to know about special needs trusts is that the beneficiary of the trust does not, and cannot, control distribution of trust assets. The funds are used for the beneficiary’s benefit, but the beneficiary himself/herself may not directly take or distribute the funds.

As noted above, the overarching goal of a special needs trust is to provide for a beneficiary’s needs without jeopardizing his public benefits.

2 Types of Special Needs Trusts

There are generally 2 types of special needs trusts. A special needs trust attorney can help determine which is best for your needs.

They are:

  1. Third-party Special Needs Trust

This is generally the trust most people think of when they think about special needs trusts.

The third-party special needs trust is an SNT that is set up by a third party for the benefit of the beneficiary. Quite often this third party is a parent or grandparent of the beneficiary. They create the trust for the benefit of a disabled child or grandchild.

A third-party SNT can be set up by anyone other than the beneficiary.

This type of special needs trust can be funded through a Last Will and Testament (“Will”) or it can be a standalone special needs trust.

If it is established through a Will, the special needs trust will not come into being until the death of the trustor.

Understanding what your options are when it comes to special needs trusts is just one reason why you should speak with an experienced special needs trust lawyer.

  1. Self-settled Special Needs Trust

The second main type of special needs trust is a self-settled special needs trust.

As the name implies, this trust is made by a disabled individual and funded with his/her own funds, for his/her benefit.

These types of trusts are often made by those receiving Medicaid. In other words, in this type of trust, the recipient of government benefits is the trust maker and the beneficiary of the SNT.

Florida law places several restrictions on a self-settled special needs trust. For example, only disabled adults under age 65 may create one. Also, the self-settled special needs trust must be irrevocable. Finally, a self-settled special needs trust is required to have a payback provision that stipulates that any money remaining in the trust at the death of the disabled person will be paid back to the government to the extent required to reimburse the state for Medicaid benefits paid to the trust maker during their lifetime.

Whichever type of special needs trust you may be considering, these trusts can be critical to planning for loved ones with special needs or if you may be facing a disability. There is a lot more to know about special needs trusts in Florida. Consult with an experienced trust lawyer to learn more.

Special Needs Trust Lawyers in Florida  

Helping individuals plan their estate and navigate the probate process is what the special needs trust attorneys at the SJF Law Group do. We provide individualized estate plans and expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. Contact us here or email us at: [email protected].

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